With the exact date for the next elections still not set, be it by order of the apex court or a consensus between all political parties or some other strong arm tactics, there is tacit agreement between all stakeholders, political and institutional, that the incumbent government must present the next budget before 30 June when the Finance Act valid for one fiscal year (1 July to 30 June) expires – an Act that empowers the government (elected or caretaker) to allocate expenditure from taxes/revenue collected.
The one-year deadline for expiry of the applicability of the Finance Act, has never implied that allocations for any item over and above what was budgeted or back-dating some of the proposals contained in mini-budgets (over the budgeted revenue generating proposals) have never been granted ex-post facto approval by parliament, requiring a simple majority for their passage which, by definition, all governments have. This has been a legal out used by many a finance minister struggling to contain a burgeoning budget deficit post-budget to meet quantitative donor conditions.
On 30 March 2023, the Finance Division (Budget Wing) issued a two-page circular titled Execution of budgetary allocations in accordance with the provisions of the constitution of Pakistan 1973 and PFM Act 2019 to all government entities and the State Bank of Pakistan, stipulating that: “the financial procedure of the Federal Government has been laid down in Articles 78 to 84 of the Constitution of Pakistan 1973.
It broadly prescribes that no expenditure from the Federal Consolidated Fund shall be made unless it is duly authorized by the National Assembly and specified in the Schedule of Authorized Expenditure, so authenticated by the Prime Minister. Furthermore, the Federal Government shall have power to authorize additional expenditures (Supplementary Grants) during a financial year from the Federal Consolidated Fund, whether the expenditure is charged by the Constitution upon that Fund or not.
In pursuance of Article 79 of the Constitution of Pakistan 1973, the Public Finance Management Act 2019 has been enacted by the Federal Government. Section 22 of the Act provides that custody and operation of Federal Consolidated Fund and Public Account of Federation shall vest in the Finance Division under supervision of Federal Government.
Furthermore, under Section 23 of the Act, no authority shall incur or commit any expenditure or enter into any liability involving expenditure from the Federal Consolidated Fund and Public Account of the Federation until the same has been sanctioned by a duly empowered competent authority and the expenditure has been provided for the financial year through Schedule of Authorized Expenditure; or Supplementary Grant and Technical Supplementary Grant; or Re-Appropriation.” This circular was bafflingly unavailable on the Finance Division website for a few hours Thursday morning but reappeared later that evening after a three judge bench concluded its proceedings on holding elections across the country the same day.
Be that as it may, caretakers do not have the mandate to either levy additional taxes or allocate expenditure not approved by an elected parliament. This explains the general consensus that the budget for next fiscal year 2023-24 must be approved by parliament before the lapse of the prevailing Finance Act on 30 June; however, one would hope this does not rule out a pre-caretaker cabinet and an undissolved parliament from extending the applicability period of a budget approved by parliament beyond the end of a fiscal year and granting ex-post facto approval after the general elections as supplementary grant, technical supplementary grant or re-appropriation – a proposal that may present an ideal situation for two reasons.
First, an incoming administration would then start from a clean slate and present a budget for the rest of the year based on its own economic vision/agenda. It may opt to engage in negotiating with donors if a programme and/or a specific project is ongoing. Ironically, two out of three finance ministers during the Khan administration publicly shared their widely different opinions on the staff-level agreement reached with the International Monetary Fund (IMF) on 12 May 2019.
Reports indicate that Asad Umar had almost finalized a deal with the Fund that was considerably less politically challenging than the one agreed by his successor Hafeez Sheikh which, in turn, was severely criticized by his successor Shaukat Tarin. And contrary to his own expectations, based on his experience in negotiating the 2008 Stand-By Arrangement with the IMF, Tarin was unable to convince the Fund to phase out the harsh politically challenging conditions.
The two finance ministers of the incumbent government have publicly aired their differences against the other, and like Tarin, over rated their own negotiating capacity with the Fund while inexplicably not giving due consideration to the actual state of the economy or past experience of international donors with respect to government after government abandoning structural reforms mid-programme.
Miftah Ismail gauged the IMF mood much sooner with the seventh/eighth review agreed in August last year (about four months after he was given the portfolio) and to the benefit of the economy, while Ishaq Dar (after nearly seven months) has yet to convince the Fund to declare the ninth review a success (scheduled for early November 2022 in the seventh/eighth staff review documents).
His periodic claims that all Fund conditions have been met ignore the continuation of flawed policy decisions for example massive borrowing from commercial banks (over one trillion rupees July-December 2022 compared to the comparable period of the year before) to fund an ever-rising current expenditure (anti-growth while fueling inflation). Secondly, it stands to reason that the scheduled end of the Fund programme on 30 June would necessitate the approval of the next budget proposals from the Fund.
In other words, this is unlikely to be the usual election year budget and it is expected that donor agencies led by the IMF will continue to dictate harsh conditions bifurcated into: (i) structural reforms widely supported though never implemented (which seek to improve governance of poorly performing state entities – ministries, departments, as well as state owned entities); and (ii) meeting the economically viable objective of achieving full cost recovery which, sadly, administration after administration has exclusively focused on and which explains the recent massive rise in rates of utilities and petroleum levy. In the event that the budget is not supported by the donors borrowing from friendly countries may well become elusive again.
Late 2012 the PPP-led government refrained from initiating negotiations with the IMF by legitimately arguing that whoever formed the next government, after the 11 May 2013 elections, should be the one to take the country into the next programme. The PML-N emerged as the single largest party, formed the government, and on 4 September 2013 secured an IMF programme.
However, this courtesy, to defer presenting the budget to the next elected government was not extended by the Shahid Khaqan Abbasi/Miftah Ismail team in 2018 and the budget for 2018-19 was presented on 28 April, 2018 – a month before the parliament’s term expired on 31 May 2018 with many legitimately contending at the time that it was an election year budget with PML-N supporters arguing that the date of the budget announcement took account of the fact that caretakers, with no mandate to extend or formulate a budget for the year, were to be installed on 1 June 2018. However, the country was not on an IMF programme at the time like at present.
To conclude, the Fund is unlikely to disburse the next or final tranche as the case maybe, assuming that the ninth review is declared a success or else there will be repercussions on the country’s capacity to stave off default, without approving the next budget and therefore it would be preferable to explore extending the validity of the budget to beyond the one year till such a time as the next elected government takes oath.
Copyright Business Recorder, 2023
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